Chinese Journal of Sociology ›› 2017, Vol. 37 ›› Issue (2): 51-73.

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Does Online Sentiment Predict Stock Market Indices? The ARDL Bounds Tests Based on Sina-Microblog Data

CHEN Yunsong1, YAN Fei2   

  1. 1. Department of Sociology, Nanjing University;
    2. Department of Sociology, Tsinghua University;The Walter H. Shorenstein Asia-Pacific Research Center, Stanford University
  • Online:2017-03-20 Published:2017-03-20
  • Supported by:

    This study is supported by the National Social Science Funding Project "Determinants and Dynamics of Social Class Identification among the Chinese in the Transitioning Period"(16BSH011) and the Tsinghua University Fundings for Self-Selected Topic Project.

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Abstract:

This study focuses on the relationship between online sentiment and the stock market as both play a significant role in modern life. More specifically, based on a time series analysis of Sina-Microblog data and SSE composite index data, this paper explores whether and how Sina-Microblog feeds affect stock market trends in China. We extracted the frequency of occurrence of stock market-related terms on Sina-Microblog to construct an indicator of online market sentiment. Considering the complexity of the effects of online sentiment on the process of decision-making, we divided the stock market into low volatility and high volatility to analyze the effects. Granger tests using the T-Y process and co-integration analyses based on bound tests using the ARDL model show that:1) the indicator of online market sentiment in previous 1-3 days is a statistically significant predictor of the daily SSE composite index; 2) there is long-term relationship between online market sentiment and the SSE composite index; 3) the relationship is insignificant when the market volatility is low, and 4) the relationship is mediated by the capital flow into the stock market. As an empirical study of the online sentiment influences real economic and social consequences, this paper contributes to our understanding of the vital role that social media plays in the economic and social process.